Sale of Share Agreement Template (to another Shareholder) (A131)

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Who can use this Agreement for sale of shares?

You need this document if you want to transfer control of a company from a Seller to a Buyer, where the Seller and Buyer are the only shareholders in a company. It can also be used by other shareholders selling to each other.

What is this Agreement for?

This agreement for sale of shares sets out the basis for the transaction – price, payment and the procedure to be followed.

What are the main issues?

Apart from price and payment terms, the seller will give some warranties to the buyer e.g. that there are no undisclosed transactions. There is also an indemnity against any losses incurred by the buyer as a result of some breach by the seller of their obligations.

Where there is a delay between the sale agreement and completion, the procedure will be set out in the agreement.

Resignation: if the seller is a director, he/she will probably resign when the sale is completed.

If either or both parties are signatories to a shareholders agreement, the sale agreement will need to deal with this.

What detailed terms does the share sale agreement contain?

This five page document contains 7 clauses covering

  • sale and purchase of shares
  • price
  • warranties
  • completion
  • law and jurisdiction
  • shareholders’ agreement
  • a general clause addressing variation, the scope of the agreement, representation, severability, assignment and third party rights.

For more information on each of these sections, see our Explanatory Notes below which you will also receive when you download the document from our website.

For information on signing documents see our Contract Signing page

When I download the document, can I change it and/or use it more than once?

Yes, all ContractStore’s templates are in MS Word and you can use the contract on more than one project. For more information, watch the video on this page of our website or see our FAQs

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Explanatory Notes

This agreement is designed for use where the two parties are the only shareholders in a company and one of them wishes to sell his/its holding to the other. In such circumstances where, as our agreement contemplates, both parties are represented on the board of the company and both of them are parties to a shareholders’ agreement, very little formality is required: both of them should already know about the company’s business without the buyer having to rely on ‘due diligence’.

The main concern from the Buyer’s point of view is to ensure that the shares which he is acquiring are beneficially owned by the Seller and that no third party has any undisclosed interest in those shares. The Buyer will also want to be sure that the sale is only completed when the Seller’s directors resign (or the Seller resigns as director) from the board.

Turning to the specific clauses:

1. SALE & PURCHASE OF SHARES

This sets out the transaction and refers to a schedule which specifies the number of shares being transferred.

2. PRICE

This contains the price payable by Buyer to Seller and makes it clear that payment will be due on completion.

3. WARRANTIES

This deals with the point made above: the Seller warrants to the Buyer that he is the beneficial owner of the shares and that the same situation will apply at completion. In the interim period, Clause 3.3 makes it clear that the Seller will not do anything to prejudice the business of the Company. Clause 3.4 provides for an optional indemnity to be given to Buyer by Seller in the event that Seller is in breach of the warranties in clause 3.

4. COMPLETION

This deals with the mechanics of the transaction – the completion date – i.e. the date when the shares will be transferred and resignation letters from Seller’s nominated directors (or, where Seller is a director, his resignation) will be handed over. Payment will also be made for the shares at this point (4.2). Clause 4.3 provides for payment of interest in the event that all or part of the purchase price is paid late.

If part of the deal is that the Seller will not compete with the Company for a specified period after selling his shares, then clause 4.5 is recommended so as to be sure that he is legally obliged not to compete with the company for a specified period. It is in italics and these can be removed if it is to apply, otherwise the clause itself should be deleted.

5. GENERAL PROVISIONS

This clause sets out a number of standard “boiler plate” provisions.

6. GOVERNING LAW AND JURISDICTION

The governing law of the agreement is English law and the English courts are to have exclusive jurisdiction in relation to any disputes arising from the agreement.

7. SHAREHOLDERS’ AGREEMENT

If the Buyer and Seller are the two parties to a Shareholders’ Agreement, this clause will be applicable and the effect will be for the Shareholders’ Agreement to be terminated on completion.